Hey Teachers...leave them kids alone!

A few days ago I went to a meeting sponsored by the club Think. The debate was on privatization. The whole issue with the collapse of many big companies and the subsequent bailout of those companies sparked this debate. Many people see the demise of these corporations and the troubles the financial system is facing as a damning critique of capitalism. Thus, the government needs to step in and help because it can do things better.

For specificity the debate ended up focusing on education and what the outcome of privatization would be. I enjoyed listening to everyone's opinions on the subject and came up with a few thoughts that I wanted to jot down about the subject.

The first idea I had was: What exactly are we hoping to accomplish with public education? I think for most people it boils down to three things. One, some parents may have smart kids that would benefit from an education but are unable to afford the cost of school. Two, some parents are lazy and irresponsible and would not send their kids to a good school or perhaps even to school at all. Three, we want the population to be well educated.

The second idea was: How do we fix these problems? Public education provides a nice base for all kids. It can avoid both the problem since poor parents have a free school for their kids and bad parents are legally obligated to send their kids.

In spite of the benefits of public schooling it does suffer from several problems. First of all, it doesn't do that great a job of educating. According to this article, the US is ranked 18th out of 24 developed countries in terms of K-12 education by UNICEF. I think this stems from the fact that public schools are set up to be little geographic monopolies. Even if you give the parents a choice between schools, they're set up so that they don't compete with each other*. Second, since the government is endorsing the curriculum, it has to pick something that is mildly satisfying for all parents. This means that the government has to pick abstinence only or safe sex, creationism or evolution, etc. No choice is going to make everyone happy. Thirdly, the government doesn't know when a course is valuable or not. At a university, if students are willing to pay for a class they'll provide it. Not so at a public middle school. Kids don't pay for a class so when it's time for budget cuts Arts and Music lose.

Public schools don't really get the feedback from the market like other businesses do and they perform badly because of it. A little competition would help get these schools behaving more like a company which means they'll fight to provide the best education they can at the lowest price. Think about it this way, everybody complains about the DVM but they don't have a choice but to go there. However, if you don't like Wal-Mart, you can go to Target and these companies know it.

And come to think of it, I've often thought about how cool it would be to open a school and in a conversation today someone echoed that desire. I know of plenty of good people who would be interested in opening schools who would be dedicated to the idea. None of them open schools because the public school system is a monopoly. On average, parent already pays around $8,000 to $10,000 in taxes per year to fund public education. For that parent to send their kid to a private school they would have to pay $16,000 (taxes plus the private school tuition) to get an education that is worth around $8,000. Not many people are willing to do that so few private school are ever opened.

I think a voucher system could introduce that competition nicely. It already seems to do well for higher education. Students can receive scholarships (vouchers) and pick the school they think offers the best education. If they want a better education, then they can spend some of their own money on top of the scholarship. Colleges have to compete to attract good students and so they have to provide a good education at a low cost. And as a nice bonus, no one has to agree on what they think a good education means. Some people prefer a conservative education, some prefer a liberal education. Some prefer to focus on math and science others on art and literature.

Vouchers also seem to solve the problem that poor parents can't afford to send their kids to a good school. Scholarships are already set up to give smart, low-income students an opportunity to go to the same schools they rich attend allowing them to get out of poverty based on merit. The taxes that fund the voucher system could be progressive so that the rich help fund the education of the poor**. So if you're worried that the rich will get richer and the poor will get poorer all you need to do is give the poor a scholarship for around what a rich person would pay for education (probably around $12,000 would do it).

Vouchers may even solve the bad parenting issue. I've heard many people argue that a bad parent will just send their kid to the nearest school and not take the time to investigate whether that school is very good. However, if a school is going to stay in business it will probably have to cater to more than just the small group of bad parents. Good parents will keep an eye on school quality and leave if the school starts doing poorly and it will have to close or improve. Thus the bad parents will free ride on the good parent's watchfulness. Bad parents are bad by definition so they could easily find some terrible shack where the teacher just beats the kids all day. I'm not sure that there are many parents that are that deliberately awful, but maybe. So I'd be willing to bend on my free market principles and OK some rating system like you find on restaurants. If a school doesn't meet some level of qualification it gets shut down.

All in all, I think privatization with a voucher system could be a really good thing for education in the country. Certainly, it is contingent on some political factors. Teacher's unions and county school boards would oppose this move and with anything that involves politics there isn't necessarily the incentive to structure the voucher system in way that won't cater to someone's special interests. But hey, even a cynical economist can hope right?


* For example, you never see two elementary school right next to each other even though you see grocery stores right next to each other all the time.

** If you're into that sort of thing.

Aren't People Crazy?

I hear this a lot, "People are crazy." It gets said in a lot of different ways, but the core is people are irrational. They make bad decisions and bad decisions are irrational. For instance, people heavily invest in stock of the company that they work for. A portfolio like that leaves them vulnerable to too much risk of loss. Basically, people think the company that they work for is a safer bet than it is (as the people who worked for Enron found out).

People mis-estimate risk. We are systematically wrong when guessing how risky some activity is due to what many claim are biological factors that were evolved when humans lived in pre-tribe groups. Two researchers, Kahneman and Tversky, won a Nobel prize for their work in demonstrating that people will take a risky bet when it's phased one way, but will reject the bet when it's phrased a little differently. They've also shown that people are consistently wrong when estimating how likely they are to die from various things, like car crashes for instance.

The November 2008 issue of Popular Science had a similar take on how irrational people are. They report that you are 40,000 times more likely to die in a car crash than on a roller coaster and "yet it's the amusement-park rides that scare people." We take things that seem like more immediate threats too seriously. We are afraid of flying but not pollution. There is a one in a million change that you will die in a plane crash but 40% of deaths are caused by pollution.

I think this is a little unfair though. You look at the risks (which are essentially the costs) and say that we should be doing less of the high cost activity. It's like saying, watching TV is cheaper than eating so you should really be watching TV and not eating. To say that a person should rationally be afraid of the risker/costlier activity ignores the relative benefits of the activities.

Going on a roller coaster gets you nothing but an adrenaline surge. Riding in a car allows you to see your family, get food, go to school and an array of other important activities. Even though the risks are higher the rewards are much greater. So we aren't afraid of getting in the car. The same is true of pollution versus planes. There are plenty of substitutes for long distance travel, but if you want to live a city (because of all the fun stuff there) you've got to be okay with the pollution.

Now, if only I could figure out why people are afraid of public speaking.